Will the main home exclusion to the bright-line test apply to a property that used to be the taxpayer's main home?
QUESTIONAn individual purchased a residential property in June 2019. The individual lives in the property with their family home. Accordingly, it currently qualifies as a main home for bright-line purposes.
The individual is considering buying a larger family home and may move into this property in late 2021.
Rather than sell the original family home immediately, the individual is considering renovating the property, as it needs a refresh, before trying to sell it. The renovation will take approximately 3-5 months and then the individual will seek to sell it. This sale is likely to occur within the five-year bright-line period for the property.
Can the property still qualify for the main home exemption from the bright-line test even though the individual will own another main home at the time of sale?
A property purchased between 29 March 2018 and 26 March 2021 is subject to the 5 year bright-line test. Such properties are also not subject to the amended main home exclusion.
The pre-27 March 2021 main home exclusion provides the bright-line test does not apply to a person who disposes of residential land, if, for most of the period starting with the date the property’s title was registered in their name and ending with the date an agreement to sell the land is entered, the land has been used predominantly for a dwelling that was the main home for the person.
A main home means, for a person, the one dwelling:
- that is mainly used as a residence by the person (a home); and
- with which the person has the greatest connection, if they have more than 1 home.
Therefore, provided that for most of the time between June 2019 and the date the agreement to sell the property is entered into the property was the individual’s main home, the main home exclusion will apply even though the individual has a new main home. For example, assume the individual lived in the property from 1 June 2019 to 31 May 2021 (24 months). Provided the property is sold before 31 May 2023, for most of the relevant period (ie, more than 50% of the time) the property was the individual’s main home and the exclusion will apply.
Note that under the recent change to the main home exclusion that applies to land acquired from 27 March 2021, if the property was not the individual’s main home for more than 12 months during the period of ownership, the main home exclusion would not apply. The sale of the property would be taxable under the bright-line period but with an apportionment for the period it was a main home.References:
Income Tax Act 2007, ss CB 6A, CB 16A.
DISCLAIMER: Every care has been taken in the preparation of answers. However, the CCH/TEO Question and Answer Service is intended to provide basic guidelines and information based on given fact scenarios and is not intended to constitute accounting, tax, legal, investment, consulting or other professional advice.